Building Blocks for the Credit Industry: Disentangling the Bank-firm Relationship

This chapter aims to explore how evolutions in banks’ business models have shaped bank-borrower relationships, especially from the perspective of corporate borrowers. Although business models have changed quite slowly in the banking industry over the past decades, the most significant disruptions have occurred all at once since the 2010s. A major one has been the steady decline in the number of physical branches, even across advanced economies such as the United States and Europe, reflecting a broader move away from physical infrastructure as the foundation of banking operations. The drivers of this transformation and its consequences for lender-borrower relationships remain topics of considerable interest. Accordingly, the chapter discusses the changing dynamics between banks and corporate clients, focusing on the interaction between traditional practices and technological developments. Existing literature underscores the reasons behind branch closures, emphasizing the role of technology in complementing and replacing conventional credit functions. Earlier studies have already explored the broader implications of de-branching, including potential effects on economic activity and corporate lending volumes. We review this literature, considering both theoretical perspectives and empirical findings. A recurring theme is the importance of information – its collection, processing, and integration – in shaping credit outcomes. Factors such as geographical and functional distance and institutional practices play a key role in determining the efficiency of credit allocation.